A dynamic model of manufacturing quality's effect on optimal advertising and pricing policies

Abstract This paper deals with the determination of optimal advertising and pricing policies when the influence of manufacturing quality on sales ra considered. Research to date has focused on the effect of advertising and pricing independently on the sales rate of a product under a variety of product and market conditions. These studies have not considered the effect of product quality, an important component of competitive strategy. We develop a dynamic model to maximize discounted profits over a planning horizon, in which sales rate is dependent on price, advertising and product quality. Using standard methods of optimal control theory we characterize qualitatively the nature of optimal advertising, quality, and pricing policies under a variety of conditions.

[1]  John D. C. Little,et al.  Feature Article - Aggregate Advertising Models: The State of the Art , 1979, Oper. Res..

[2]  F. M. Gryna.  Quality planning and analysis , 1970 .

[3]  P. Crosby.  Quality Without Tears , 1984 .

[4]  S. Sethi.  Dynamic Optimal Control Models in Advertising: A Survey , 1977 .

[5]  Engelbert J. Dockner,et al.  Optimal advertising policies for diffusion models of new product innovation in monopolistic situations , 1988 .

[6]  R. Wensley.  Strategic Marketing: Betas, Boxes, Or Basics , 1981 .

[7]  Abel P. Jeuland,et al.  Experience Curves and Dynamic Demand Models: Implications for Optimal Pricing Strategies , 1981 .

[8]  Armand V. Feigenbaum,et al.  Total quality control , 1961 .

[9]  C. F. Jex.  Sequential estimation of a time dependent advertising effectiveness model , 1990 .

[10]  R. D. Buzzell,et al.  Product Quality, Cost Position and Business Performance: A Test of Some Key Hypotheses , 1983 .

[11]  Charles H. Fine.  Quality Improvement and Learning in Productive Systems , 1986 .

[12]  Gerald L. Thompson,et al.  Optimal Pricing and Advertising Policies for New Product Oligopoly Models , 1984 .

[13]  V. Rao.  Pricing Research in Marketing: The State of the Art , 1984 .

[14]  S. Kalish.  A New Product Adoption Model with Price, Advertising, and Uncertainty , 1985 .

[15]  W. Deming.  Quality, productivity, and competitive position , 1982 .

[16]  Barrie Dale,et al.  Quality costs: a critique of some ‘economic cost of quality’ models , 1988 .

[17]  Ambar G. Rao,et al.  Modeling Response to Advertising and Pricing Changes for “V-8” Cocktail Vegetable Juice , 1986 .

[18]  D. Garvin.  Competing on the Eight Dimensions of Quality , 1987 .

[19]  John G. Wacker,et al.  An integrative theory of strategic quality management: a cost-benefit framework for evaluating quality improvement programmes† , 1989 .

[20]  F. Leonard,et al.  The Incline of Quality , 1982 .

[21]  S. Kalish.  Monopolist Pricing with Dynamic Demand and Production Cost , 1983 .

[22]  Bruce R. Robinson,et al.  Dynamic Price Models for New-Product Planning , 1975 .

[23]  Aneel Karnani,et al.  Generic competitive strategies—An analytical approach , 1984 .